Goldman Sees Mutual Funds’ Edge in Options Trading

By Brendan Conway

Less well known: A subset of mutual funds is turning to the options market to offer something that investors can’t easily replicate on their own.

Bloomberg News

Nearly 200 mutual funds turn to these guys for an edge.

There are nearly 200 mutual funds active in the options market, and all else equal, many options users have been able to beat peers, according to research released last week by Goldman Sachs (GS). “Heavy” options users beat competitors by an average of eight percent, with a standard deviation that was five percent lower, according to the team of seven strategists including John Marshall, Marc Irizarry and Krag Gregory.

Holding a combined $460 billion in assets, the average fund in this group increased assets under management from less than $7 billion in 2010 to $11 billion today. Most of them are selling options, with a heavy bias toward income generation. About two thirds use call-option selling strategies, in which money is made by selling bullish options, often against stocks held by the manager (“overwriting” or “covered calls”). Of those, the great majority (nearly 90%) are selling options on single stocks. A quarter of all the funds in the study sell put options.

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